Want Dividend Growth? Check These Health Care Stocks

Although interest rates have increased, income-oriented investors should include dividend stocks in addition to their existing fixed-income investments. Many companies offer relatively high dividend yields as well as the potential for enhanced overall returns.

By focusing on particular sectors that may currently be out of favor, bargains can be found.

The healthcare sector is currently unsettled, due to uncertainties surrounding pledges from Democratic presidential candidates advocating Medicare for all as well as resuscitation of the Affordable Care Act.

The health sector is up only 3% this year, compared to 18% for the S&P 500its overall cost structure has dramatically improved.

Health stocks to consider

Each of the three stocks recently sold at approximately 10% off their 52-week highs. All of the companies provide good dividend yields. Each of these corporations has healthy balance sheets as well as solid earnings growth, which provides ample free cash flow for enhancing dividend payouts.

United Health Group

Although this stock has a relatively low current dividend yield of 1.5%, it provides the prospect of ample dividend growth. The company has regularly increased its dividend by double digits — evidence of robust free cash flow. Last year United Health Group raised the dividend by 20% to $3.60 per year.

Medtronic

This medical-device manufacturer recently yielded 2.2%, above the S&P 500’s average of 2.0%; it has a one-year return of 11.5%. The company generates generous free cash flow, as evidenced by its strong earnings growth. Medtronic earned $5.15 for its current fiscal year, up from $4.77 for the prior year.

Quest Diagnostics

The stock currently yields 2.2%. The company provides medical tests for a variety of health conditions and was recently named a preferred labor provider for United Health. Analysts anticipate Quest will earn $6.47 per share in 2019, up from$6.31 last year. After a 6% increase declared in late 2018, its annual dividend is now $2.12 per share.

Each of these three stocks has good current dividend yields, a record of dividend growth and are all selling well off their highs for the year. All of these factors could provide income investors with better than average total returns.

Small-cap winners galore

The big stock market winners share one common attribute: Near the beginning of the ascent of their shares, the companies offer revolutionary products or services, are market leaders in their respective industries, or both. Some big stock market winners that possessed the attributes outlined above are Netflix (NFLX), which we recommended to investors in October 2002; Intuitive Surgical (ISRG), which we bought and recommended in July 2004; Baidu.com (BIDU), which we bought and recommended in August 2006; and MercadoLibre (MELI), which we recommended to investors in October 2010. Get up-to-date small-cap stock picks from David Frazier, editor of Small-Cap Profit Confidential.
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